While investments were initially limited to only financial benefits, trends have changed in recent years. Socially responsible investment (SRI) has emerged as a compelling approach for investors who are looking for not only financial returns but also environmental benefits.
You can just say that an SRI is a socially conscious investment. This investment can be made into separate companies that have good social value. You can also choose a socially conscious mutual fund or such investment opportunities to invest in a socially responsible way.
We have compiled this beginner’s guide to tell you everything about socially responsible investment, including its principles, benefits, and practical steps to follow. Let’s dive right in.
What is Socially Responsible Investment (SRI)
As we already mentioned above, socially responsible investment involves aligning investment strategies with ethical and sustainable principles. Investors consider not only the financial performance of an investment but also its impact on society and the environment.
For those of you who may know, there are three pillars of SRI. These include environmental impact (E), social responsibility (S), and corporate governance (G).
These pillars are termed ESG standards, and investors who go for socially responsible investing are looking for investment opportunities that meet ESG standards. You can also find more about socially responsible investing opportunities at SoFi.
Meeting ESG standards means utilizing investments in a way that considers and contributes to environmental sustainability, like renewable energy and eco-friendly practices. Secondly, the investments should support socially responsible practices, such as fair labor and community development.
Lastly, these investments prioritize companies with transparent and ethical governance structures so the main purpose of the investment is met.
The Benefits of Socially Responsible Investment
SRI strategies provide multiple benefits to individuals and businesses looking to make a contribution towards corporate accountability and reducing environmental footprint. Let’s read about some of the benefits here:
1. Aligning Values with Investments
SRI allows investors to put their money where their values are. By selecting investments that align with personal or ethical beliefs, investors can contribute to positive change in areas they care about. This can be anything ranging from environmental impact to corporate governance.
2. Profitable Strategies
Socially responsible investments are not only focused on ethical practices. You can say that SRI funds are as profitable as they are ethical. With the improved focus of most people and business entities on environmental contributions, these strategies have started performing well. We can say that the performance metrics of SRI funds are now on par with conventional funds.
3. Long-Term Financial Performance
These strategies are not only profitable but provide long-term financial performance. Contrary to the misconception that socially responsible investments yield lower returns, studies have shown that companies with strong ESG practices can be more resilient and deliver competitive financial performance over the long term.
4. Positive Social and Environmental Impact
Beyond financial returns, SRI allows investors to contribute to positive social and environmental outcomes that promote a sense of purpose and responsibility.
How to Approach Socially Responsible Investment?
Let’s read about some steps involved in approaching socially responsible investments.
1. Define Your Priorities
Identify the social and environmental issues that matter most to you. Whether it’s climate change, social justice, or ethical business practices, you will need to understand your values and priorities to align your investments accordingly.
2. Conduct Detailed Research
Find all possible investment options that align with your values. Many financial institutions offer SRI funds or portfolios. Look for transparent reporting on ESG factors and the overall impact of the investment.
3. Get Professional Guidance
If you don’t know much about socially responsible investments, you can consult with a financial advisor who specializes in socially responsible investing. They can help make an investment strategy that aligns with your financial goals and values.
